The welfare cost of imperfect competition and distortionary taxation

Magnus Jonsson
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Magnus Jonsson: Sveriges Riksbank

Review of Economic Dynamics, 2007, vol. 10, issue 4, 576-594

Abstract: The welfare cost of imperfect competition in the product and labor markets in the United States is quantified in a dynamic general equilibrium model. We find that the welfare cost of imperfect competition in the product market is 3.62 percent while it is 0.58 percent in the labor market, taking the transition path from the distorted to the optimal steady state into account. If we also take into account that the U.S. economy is characterized by distortionary taxation, the welfare cost of the product market distortion increases to 13.51 percent and the labor market distortion to 4.35 percent. (Copyright: Elsevier)

Keywords: Imperfect competition; Distortionary taxation; Welfare (search for similar items in EconPapers)
JEL-codes: D40 H20 L1 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (23)

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DOI: 10.1016/j.red.2007.01.002

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